IP monitor: Compensatory and punitive damages: Patent infringement

A recent decision from the Federal Court highlights some of the factors that could lead to punitive damages for patent infringement in Canada. Compared to the United States, the awarding of enhanced or punitive damages in Canadian patent cases is uncommon.

The patent in issue was directed to a rapid cooling ventilation system for food products. The patentee, Fromfroid SA, argued that 1048457 Ontario Inc. (aka Skotidakis) and Frimasco Inc. had infringed its patent with dairy product-cooling cells that were built by Frimasco at Skotidakis’s facility in Ontario. The main issue was whether the cells were built before or after the patent expired in July 2018. The court agreed with Fromfroid that they were built before that date and found that they infringed the patent.

The court found that the defendants were jointly and severally liable for $149,270 in compensatory damages. The court also awarded $200,000 in punitive damages against Skotidakis and $50,000 in punitive damages against Frimasco.

Background

This case has its origins in a failed bid. In 2014, Skotidakis began the process of acquiring a cooling system and contacted Fromfroid’s commercial agent in Canada. Through the commercial agent, Skotidakis was loaned a trial cell for six weeks. Fromfroid then submitted a bid to construct the system; however, Skotidakis did not follow up on the offer.

Approximately three months after the patent expired in 2018, Fromfroid’s commercial agent attended Skotidakis’s facility to service equipment not relevant to the proceedings. The agent discovered cooling cells bearing a strong resemblance to those sold by Fromfroid and photographed them.¹

Fromfroid believed that the cells in question could not have been built in the short time following the expiry of its patent, so it started an infringement action.

Circumstantial evidence of infringement

Fromfroid had no direct evidence on the pivotal issue: the date on which the cells were built. However, Fromfroid was able to marshal a range of circumstantial evidence that supported a presumption of fact that the cells were built before July 2018.

For example, the photos taken by Fromfroid’s commercial agent in October 2018 showed wear/damage on the cells, suggesting that they had been in use for some time. Fromfroid presented expert testimony that it would have been difficult to build cells of this kind in three months. Invoices also showed that Frimasco acquired the fans for the infringing cooling cells in 2016.

The court largely rejected the defendants’ fact evidence as implausible and found that its main witnesses lacked credibility. The court was similarly unpersuaded by the defendants’ “rather unprofessional or sketchy” documentary evidence, leaving open the possibility that the documents tendered were forged or related to a different project. The court noted that Fromfroid had sent a demand letter to Skotidakis less than three months after the defendants’ work allegedly came to an end in 2018, commenting that “one could have thought Frimasco would retain proof of its expenditures.” The court also rejected an argument based on the sufficiency of the electrical supply to the Skotidakis facility and pointed to other inconsistencies in the defendants’ version of events.

Ultimately, none of the defendants’ evidence was sufficient to displace the presumption that, based on Fromfroid’s circumstantial evidence, the infringement occurred before the patent expired.

It should be noted that even though the events occurred in Ontario and the matter was heard by the Federal Court, civil law evidentiary principles applied because the trial was heard in Quebec. However, similar rules regarding presumptions of fact also exist in the common law provinces.

Punitive damages exceeding compensatory damages

The court awarded both compensatory and punitive damages against Skotidakis and Frimasco.

Compensatory damages were calculated on the basis that Skotidakis would have purchased Fromfroid’s system had it not infringed the patent. Skotidakis and Frimasco were jointly and severally liable for the $149,470 net profit that Fromfroid would have made on the sale.

Punitive damages were determined separately for Skotidakis and Fromfroid.

The court rejected Skotidakis’s argument that it was unaware of the patent. Although willful and knowing infringement alone are insufficient to support a claim for punitive damages, the court held that there were aggravating circumstances rooted in the “highly reprehensible” conduct of Skotidakis, namely:

• Skotidakis attempted to conceal infringement by presenting various pieces of evidence intended to mislead the court as to the date at which the cells were made;
• The conduct was clearly deliberate and motivated by the desire to obtain patented technology at low cost; and
• The conduct lasted over three years, from the initial dealings with Frimasco until the patent expired.

The court also noted that Skotidakis is a large company with annual sales of approximately $200 million. Since the amount of compensatory damages was of the same order of magnitude as the savings Skotidakis made by ordering the cells from Frimasco rather than Fromfroid, an additional amount was needed to deter anyone who might be tempted to engage in similar conduct. Accordingly, Skotidakis was ordered to pay $200,000 in punitive damages.

Although the court accepted that Frimasco was not aware of the patent, it held that Frimasco’s involvement in the “cover-up” was just as reprehensible as that of Skotidakis. However, given that Frimasco did not appear to benefit from its involvement and the size of the company, the court was satisfied that a lower award of $50,000 was sufficient.

For more information, please contact your IP professional at Norton Rose Fulbright Canada LLP.

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